Economic recession, as the expression may indicate, may be defined as an overall economic slowdown or recession that significantly affect the overall economic growth, GDP output for a prolonged period, and employment numbers. For instance, “The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy.
The NBER recession is a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth” (BEA, 2008). The Recession of 2008 epitomized decades of irresponsible behavior by many financial institutions which resulted in the total collapse of recognized financial institutions such as Washington Mutual Bank, in operation since the 1800s.
Thus, the global recession took place, nearly every world economy was faced with extreme economic setbacks that resulted in many economic reforms to avoid future reoccurrences, at least for similar reasons. The government relies on various measures to deal with economic recession including lowering interest rates, and most importantly monetary policies and fiscal policies.
A brief discussion of fiscal policies
One of the most implemented tools the government relies on during economic hardships is fiscal policy. Expansionary fiscal policies influence economic activity through government buying, transfer payments and tax levels (Rittenberg & Tregarthen, 2009). For instance, during economic recessions the government may deficit spend in an effort to promote economic stability.
During the Great Recession of 2008 president, Obama relied on deficit spending to offer stimulus packages, increase public spending, and offer tax cuts. During an economic recession, government spending can promote economic equilibrium in a shorter period, reducing the effects of the recession. In addition, government spending can stimulate private sector growth, create jobs, and promote consumer spending.
For example, the government influxes money into the economy, likely deficit spending, in order to allow Americans to have more money to spend hence putting the money back into the economy potentially restarting the economy. Therefore, during an economic recession, the government uses fiscal policy to lower income taxes, as well as increase public spending which creates jobs as effective measures to ease the economic crisis and public fears.
However, in addition to fiscal policies, the government relies on monetary policies to stabilize the economy during an economic crisis. “Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. It is the sister strategy to monetary policy through which a central bank influences a nation’s money supply” (Heakal, 2016).
A brief discussion of monetary policies
There are various negative impacts of the economic recession. Inflation is one of the most significant impacts of the economic recession. For instance, inflation affects the prices of goods throughout America. The prices of milk fluctuated during the economic recession.
Companies may have issues determining how to differentiate between supply and demand and the impact of inflation. Furthermore, inflation during economic uncertainty promotes a negative domino effect. However, through monetary policies, the government can control inflation by influencing various monetary policies.
Such as, “Monetary policy consists of the actions of a central bank, currency board or other regulatory committees that determine the size and rate of growth of the money supply…Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, …” (Investopia, 2016).
Therefore, by keeping inflation low, the public and private sectors can make economic decisions without fear of monetary devaluation. As such, without the fear of high inflation, the American people can purchase new homes, buy new cars, start a business, and invest in the stock market, bonds, and continue making economic decisions that may promote economic growth (Rittenberg & Tregarthen, 2009).
The great recession of 2008 triggered extensive fiscal and monetary policies by the United States government. President Obama introduced an extensive asset purchasing program to control the inflation rate, and keep Interest rates historically low.
Additionally, President Obama authorized an extensive stimulus package that included significant tax cuts, and significant public spending. Furthermore, the government also bailed out several large corporations that employed a vast amount of people (Amadeo, 2016).
Overall, the actions of the American government during the great recession proved to be very successful. Ultimately, the United States was able to weather and overcome the great recession better than every other G20 nation (Irwin, 2014).
Amadeo, K. (2016, 11 25). Auto Industry Bailout (GM, Ford, Chrysler) . Retrieved from The balance: https://www.thebalance.com/auto-industry-bailout-gm-ford-chrysler-3305670
BEA. (2008, 03 31). Recession: How is that defined? Retrieved from Bereau of Economic Analysis: http://bea.gov/faq/index.cfm?faq_id=485
Heakal, R. (2016, Oct 19). What is Fiscal Policy? Retrieved from Investopedia: http://www.investopedia.com/articles/04/051904.asp
Investopia. (2016). Monetary Policy. Retrieved from Investopia: http://www.investopedia.com/terms/m/monetarypolicy.asp?lgl=no-infinite
Irwin, N. (2014, 06 18). Europe May Be in a Recession (Still). Retrieved from NYtimes: http://www.nytimes.com/2014/06/19/upshot/europe-may-be-in-a-recession-still.html?_r=0
Rittenberg, L., & Tregarthen, T. (2009). Principles of Macroeconomics . Flat World Knowledge, Inc.